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Sem 5 Prep
← OperationsWhat operations management is

Formulas for this chapter

Value added

Value added = Value of outputs - Cost of inputs

Any time you are asked what a transformation process is worth. Take every input the process consumed, including labour.

Value of outputs
Units produced x selling price, or the amount billed
Cost of inputs
Materials, labour, energy and facility charges consumed

Value added per unit

Value added per unit = Value added / Units produced

To compare two days, two shifts or two plants fairly, because it removes the effect of how busy the period was.

Value added
Output value minus input cost, for the period
Units produced
Good output for the same period
Step 1 of 27
The ideaTheory

Every organisation is a kitchen

Think of a kitchen. Vegetables, gas, a cook and a stove go in. A hot meal comes out. Nobody pays for the raw vegetables. They pay for the meal.

An organisation takes things in, changes them, and sends something out that is worth more than what went in. That change is the whole subject.

A bank does it with money and information. A hospital does it with sick people. A paint factory does it with pigment and resin. Same shape, different ingredients.

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